Trade

Question 1

absolute advantage

Answer 1

when a country can make a product using less factors of production than another country

Question 2

comparative advantage

Answer 2

is an economy’s ability to produce a particular good or service at a lower opportunity cost than its trading partners

Question 3

assumptions in comparative advantage

Answer 3

1. all product are homogenous
2. there are no trade barriers
3. perfect knowledge and all consumers know where to buy the cheapest product

Question 4

dynamic gains from trade

Answer 4

1. Economies of scale
2. increased competitive pressure
3. increased innovation may result in more choice

Question 5

draw a tariff graph

Answer 5

nice

Question 6

what point will trade be mutually beneficial

Answer 6

where the rate of exchange lies between the opportunity cost ratios between the two countries

Question 7

dynamic gains from trade

Answer 7

1. Economies of scale
2. increased competitive pressure
3. increased innovation may result in more choice

Question 8

what determines whether a country has comparative advantage

Answer 8

quality and quantity of factors of production

EG ghana may be able to better produce cotton because the soil is more fertile
Eg India may have a more educated workforce and can make computers more efficiently

Question 9

reasons to protect an industry

Answer 9

1. infant industry
2. strategic (keeping agriculture so other countries don’t have power over us)
3. to avoid dumping

Question 10

why do infant industries need protection

Answer 10

as they are developing the firms within may not be able to benefit from economies of scale and may not be able to compete with international firms as a result

it may also help diversify the economy making it less reliant on industries such as oil and oil prices

Question 11

evaluation of protectionism

Answer 11

protectionist measures must be implemented in the short term otherwise inefficiencies will develop as domestic firms lack competition and consumer surplus will decline as prices may rise and variety may decline.

Question 12

what is dumping

Answer 12

when a country imports a high quantity of goods at a prove which is below cost.
this means domestic firms can’t compete and may be priced out of the industry as a result

Question 13

why may over reliance occur

Answer 13

If a country fails to protect its vital industries such as food or energy

Question 14

why may tariff occur

Answer 14

Brexit leaving the trade bloc means the UK will no longer benefit from free trade

Question 15

Why is protectionism bad?

/ Why is free trade good?

Answer 15

The implementation of tariffs makes goods such as Dutch medication much more expensive

Meaning those who need medicine are less able to finance other necessities resulting in food poverty

Resulting in the loss in welfare shown in sections 2 and 4 in the tariff diagram

Question 16

Evaluation of why free trade is important

Answer 16

1. it is particularly important for free trade as the government want corona virus vaccines for cheaper so more people can access them and the UK can benefit from herd immunity

Question 17

examples of infant industries need protection

Answer 17

the UAE are massively reliant on oil. Increase in oil prices would result in massive inflation and the economy would be unstable as a result.

technology industries were protected so the economy was more diverse and less reliant on oil as a result

Question 18

An example of a country who is over reliant on another

Answer 18

80% of Ukrainian gas comes from Russia giving Russia a massive political advantage.

If Russia were to have a strike urkain may be unable to power their homes

Question 19

how to work out opportunity cost ratios

Answer 19

calculate how much it costs for product A in terms of product B

So if Country A could make 8 basket balls and only 6 shoes.

the opportunity cost of making one basket ball would be 6/8

Question 20

opportunity cost ratios to remember

cost to make 1

Answer 20

Cars                         Trucks              
Germany         20 (0.75 trucks)      5 (1.3 cars)

UK 10 (0.5 Trucks) 15 (2 cars)

Question 21

Arguments for free trade not aid

Answer 21

1. Developing countries can access products at a lower cost without having to repay the debt of aid
2. Foreign aid can displace local incentives to develop public services such as healthcare

Question 22

Arguments for aid

Answer 22

1. Just as some south East Asian countries have benefited from free trade it doesn’t mean that landlocked countries such in sub Saharan Africa will. High transport costs
2. Benefits of free trade are not always equally distributed

Question 23

What is free trade

Answer 23

An agreement between countries where there is no added costs to trade

Question 24

What is aid

Answer 24

Money transferred to another country (usually following a disaster) in the form of a gift or a loan

Question 25

Economic development

Answer 25

it means an improvement quality of life through measures such as life expectancy, literacy rates and healthcare.

Question 26

how dependant are the US and Mexican economies on each other

Answer 26

40% of of the parts of a typical Mexican export comes from the US A tariff would harm the US as they will export less. A tariff would make Mexican products more expensive in both markets

Question 27

Alternatives to trade protectionism

Answer 27

subsidies to provide capital to some industries may better allow domestic firms to compete globally as they can benefit from lower costs of production

Question 28

Mercantilism

Answer 28

when a government seeks to promote domestic industries.

Question 29

what percentage of land in France is used for Agriculture

Answer 29

55%

Question 30

what percentage of land in UK is used for Agriculture

Answer 30

36%

Question 31

what percentage of uk medicine is imported from the EU

Answer 31

90%

Question 32

how can corruption impact development

Answer 32

1. if the tax revenue earned it not reinvested back into the country through education 2. bigger class sizes 3. less one to one teaching 4. worse grades and literacy rates 5. resulting in less employability in the future 6. less income/ less food 7. less economic development

Question 33

how can levels of savings impact development

Answer 33

without secure banking systems consumers are unable to build up their wealth without wealth to invest there may not be any growth The Harod domar model says that savings are vital for growth

Question 34

how can tax levels impact development

Answer 34

with lower tax rates more businesses may be encouraged to set up in the country this may provide more employment opportunities in the local economy giving people increased income

Question 35

what is a customs union

Answer 35

a trading bloc where members benefit from free trade but are protected by a common external tariff barrier

Question 36

advantages of a custom union

Answer 36

1. can get imported goods from the EU for cheaper such as medicine (90% of medicine in the UK Is imported from the EU

Question 37

disadvantages of a custom union

Answer 37

1. can't give preferential tariffs to declining or infant industries. for example the UK may be unable to compete in the EU industry

Question 38

what is capital flight

Answer 38

occurs when assets of money rapidly leave a country.

Question 39

why may capital flight occur

Answer 39

1. increased interest rates 2. rising income and corporation tax 3. risk of governments becoming unable to repay debts

Question 40

impact of capital flight | as a result of an increase in interest rates in the UK

Answer 40

1. savers who are not inert may be encouraged to save with a US bank such a JP Morgan as they may be able to get a better return on their savings 2. in doing so they have to buy dollars as pounds have little value in the US and sell their poundds 3. this results in an increase in supply and a depreciation of the exchange rate 4. this may make imports more expensive and cost push inflation may be caused

Question 41

how and why have the UAE protected their economy.

Answer 41

1. as the UAE was developing they became veery reliant on oil due to the huge reserves beneath the area and it contributed to a high percentage of their GDP as a result 2. this was particularly damaging as when oil prices increased the country was subject to inflation making the country's economy very unstable 3. in order to prevent this tech firms were subsidised and tariffs were placed on competition abroad such as Apple 4. they better benefitted from increased domestic demand as there were less substitutes and the incentive to increase production increased as a result 5. then they can better benefit from economies of scale and better compete with global comp 6. less reliant on oil as a result

Question 42

how is HDI measured

Answer 42

1. mean and expected years of schooling 2. gdp per capita 3. life expectancy

Question 43

what ways can growth contribute to development

Answer 43

1. higher demand= higher unemployment 2. higher tax however assumes there is no risk of dutch disease

Question 44

what ways can growth harm development

Answer 44

1. inflation | 2. higher environmental damage